SBM 036 : Build a Physical Product 1 of 3: Sourcing with Terry Lin

Podcast: Play in new window | Download | Embed

How to Source Your Products the Right Way

The supply chain is a rather expansive network of systems, businesses, and suppliers that work together to keep everything running. If it was that simple and straightforward, then the supply chain would not be called, well, a chain.

Managing that chain has its own set of challenges and problems but what we’re going to talk about now lies at the very start of every supply chain out there; the source. Where do you get the sources for materials? Or better yet, how should you source the materials for your product? Fortunately for you, there are many ways to get the right kind of source of materials for your supply chain but, first, let’s cover the basics.

Why is Sourcing Important?

As the name implies, sourcing is actually the first part to managing a supply chain. You have to think of it this way: even if you have the best laid-out production, logistics, and supply network out there, your product’s overall quality will be ruined as they go through these processes if they were made from poorly sourced materials.

Imagine this scenario: supposed that you are running a restaurant that is known for employing top-rated chefs and has a menu that changes with the season. For some reason, your food is not rating well amongst critics if your staff have poured all their hearts and souls into making it.

You then find out that the middlemen you have contracted to provide you with ingredients have been cutting corners with the quality of the produce they deliver which meant that your food was bad even before they went through food prep.

In this scenario, it’s not your system that was at fault but the very source of materials that your products will be composed of. A good source then can help you avoid encountering this problem in the future.

Surprisingly, a lot of business owners get this part of the process wrong. Even if it eventually lead to quality products, the chain itself is not optimized and no amount of correct in the later parts of that chain will correct the deficiency unless, of course, you try to change the source yourself.

So What Does the Sourcing Process Look Like?

Surprisingly enough, sourcing is not as complex as the supply chain as it serves. More often than not, it follows the same systems regardless of the type of business you have.

• 1. Establishing a Source
  

  Of course, you’ll have to find a supplier that will serve as the source of your materials and negotiate a contract with them. The qualities of the supplier you will make as a source will be discussed later on but, at this point of time, it is assumed that you have exercised due diligence in scouting out your possible suppliers to make sure that they meet your demands.

  Another thing to cover here are payment terms. You’ll be surprised how many dealer-supplier relationships soured just because payment terms are not met so make sure that you come up with a proposal that they find to be appealing; without leaving your business at the short of the stick, of course.

• 2. Quality Testing
  

  This is perhaps the most crucial part of the process as this is where the tenure of that supplier will be secure. There are two ways to test the quality of your source:
   

  • Mid-Production – This is perhaps the more controllable test as it only requires you to use whatever quality assurance methods and systems you have already set for the production process. Your QA can tell you a lot as to whether or not the materials supplied to you are of good quality. The tests can range from something as simple as checking for blemishes in the end product or taking a sample and subjecting them to various adverse conditions to see how long they can go before breaking.
  • Post-Release – As the name implies, this test gauges the quality of your source based on how the end product is performing in the market. This might be more extensive on your part as it involves market research to see how the product is being treated by consumers and what problems they might have with it. Of course, this doesn’t mean that every flaw in the product is the supplier’s fault but it does tell you what materials you might have to replace when you redesign the product.
• 3. Establishing Standards
  

  This is the part of the process where you will have to review your contract with the suppliers. Have they met your demands? Are the materials they supply any good? Where there any issues with logistics and communications? You must have all of these addressed at this phase if you want the next cycle to be better.
   

Outsourcing: Why You Might Want to Consider It

There will come a time when you will be given the option to offer a third party full rein (or partial, that depends on you) over the products and services that they will produce for you. This is what is called outsourcing and it’s basically you paying an outsider to do everything from production to QA and shipping for your company. The question is when should you consider outsourcing? There are a number of reasons why.

• 1. Demand for Your Product Increases
  

  Outsourcing might be your only option to meet the demands for your products when your company’s current set up can no longer meet it. The reason is simple: your production and logistics systems can only produce so much at any given time which might not be enough especially if your product is quite in demand in the market. At this point of time, you can call for someone else to do the production for you or to share the load with your business.
   
   

• 2. Equipment Failures and Decreased Production Capacity
  

  Downtime for your equipment is necessary to maintain their functionality over a long period of time. This only becomes a problem when you don’t have spare equipment to keep production going. Worse is when your production halts mid-way due to equipment breakdown and your business currently does not have a machine to replace it. More often than not, you will have to contact another company to do the production for you or, better yet, be readily available in case something goes wrong mid-production.

• 3. Testing New Markets
  

  Once you are successful in your primary market, you might be compelled to venture into new ones. However, you are not that certain with the outcomes there. As such, it is understandable if you don’t want to invest that much in infrastructure unless you can be certain that your business is going to perform well in that market.

  This is where a 3rd party service can come into play as, in this instance, they can help you gauge how your business is going to perform in a new market with minimal investments in your part. If the results are good, then you can invest more in that market. If not, then at least you can pull out with the knowledge that you didn’t had to spend more than you should in your failed venture.

How to Qualify Your Suppliers?

Since the goal here is to optimize the production and logistics of your business, it goes without saying that you only need the business. The right kind of supplier will be different from business to business but generally they possess the same qualities that you have to be on the lookout for.

• 1. Experience
  

  Of course, you need someone who knows their stuff and has sufficient amount of experience moving through the industry. This is especially important if you are sourcing a part of your services and products to 3rd party companies as you venture into new markets.

  You can tell where a company is most experienced at by, of course, looking at their websites. A quick look at reviews for them can also tell you more than what any of their representatives are letting on such as the speed of their services as well as overall quality.

• 2. Speed and Accuracy
  

  Now, notice that these are not separate qualities when, in essence, they are. That is because being fast and being accurate go hand in hand when it comes to 3rd party companies.

  Anyone with decent tools and systems can produce results quickly but it takes an expert to not only meet deadlines but to also accurately meet the specifications on a constant basis. After all, one well-made product is far more valuable than 100 half-assed ones.

  One example of this occurred in 2016 when Warner Brother Games hired developer Iron Galaxy to handle the PC Port of one of their top-priority videogame licenses of that year, Batman: Arkham Knight. Sure, the developer met deadlines but at the expense of quality control. The end result was one that was not optimized for PC devices which resulted in a broken, buggy, and frustrating videogame experience. With just one bad port, the developer turned one of WB Game’s most anticipated releases of that year into one of the worst.

  The point is to never pick a company that favors speed more than ensuring quality in their work because a. your reputation might suffer and b. you’d have to spend more in addressing issues related to their work.

• 3. The Price

  Of course, in as much as you want quality services and products, you don’t want to get them at great cost to you financially. There are a number of 3rd party companies out there that can provide you their services for prices that you will find to be affordable.

  Of course, price can be an indicator of quality as better services tend to be more expensive but this is not always the case. In the end, you’d have to look at their quality first and decide whether or not you can negotiate with them prices that meet their needs and yours.

Securing a Supplier

Now that you know what makes a good supplier and why you should avail of their services, the next challenge is in securing their services for your company. Whether or not your relationship with the supplier is successful is something that you will have to manage yourself but here are a few tips to make sure that your relationship with that supplier starts strong.

• It’s All in the Contract
  

  The one problem with oral agreements is that they leave a lot of room for interpretation which increases the likelihood for errors both on your part and the supplier. As the one initiating the relationship, it’s obvious that it will be your party that will be the one to draft a contract which should establish the terms of the agreement like the quality you expect to receive, payment terms, and a liability clause for any breach of contract made by anyone part of the contract; amongst several others.

• Define The Terms of Success
   
  You have to understand that that 3rd party company is only there to do your bidding. They can’t define for you what you want nor can do anything related to the project without your guidance. As such, it’s best that you define what a successful scenario is for the relationship before you even establish it.

  Once you have an idea of the end goal you want to achieve, you should have no problem determining which suppliers you should take based on your needs and their capabilities.

In Conclusion

As was stated, the source for all your products and services can make or break your supply chain. Keep in mind that not all suppliers, manufacturers, and 3rd party companies out there are best for your business. You should be the one to determine who the most ideal source for all the materials that will be.

With that in mind, you should take the time to identify what you need and weight the pros and cons for each prospective supplier you might encounter. It’s important that you do this as meticulously as possible as one wrong move can negatively affect the entire chain for you.

References:

THANK YOU FOR LISTENING!

To get more SBM content sent directly to your device as they become available, you can subscribe on iTunes or Stitcher!

Also, reviews on iTunes are extremely helpful and greatly appreciated! I read each and every one of them, and feel free to share your URL there so I can contact you later on and say thanks!

If you enjoyed this episode you may also love listening to:

Part 1: Buying Back Time

Part 2: Multiple Income Streams